Retailers Still See Glut of Stores Despite Holiday Sales Rebound

(Bloomberg) -- Even after the strongest holiday season in a decade, U.S. retailers still have a big problem: way too many stores.  
 
That’s the view of attendees this week at the National Retail Federation’s trade show, where industry experts predicted that chains will extend their record-setting run of store closings in the coming years as they struggle with heavy debt burdens and shrinking shopper traffic. Continued fallout is expected for the next two to five years as expiring leases at troubled locations aren’t renewed and more retailers file for bankruptcy.

“We’re still vastly over-stored,” said Rod Sides, vice chairman of Deloitte LLP. “It’s not that the industry is dying, we’re in a correction.”

And while healthier chains are welcoming the influx of cash, both from higher sales and from the recent U.S. tax overhaul, they still need to act fast to deploy it -- or risk getting left behind as industry changes accelerate.

With more niche players cropping up online and in pop-up stores, the pressure on traditional retailers isn’t relenting, said Greg Petro, chief executive officer of First Insight Inc., a technology firm that helps retailers improve their operations. Small, nimble retailers will continue to chip away at the market share, he predicted. 

‘Forced’ Investment

“Now that they have capital, they’ll be forced to invest. If they don’t, in two years a large number will go away,” Petro said. “The only thing that’s going to sustain their business is having a reason for existence, and the only reason for existence is to have a product that’s unique.”

Many large players will likely have to improve their wage and benefit offerings to compete for talent, Sides said. Others will use any extra money to buy back shares and invest in technology and products.

U.S. retail companies tend to pay effective tax rates that are higher than in industries that get larger proportions of their revenue from overseas. After the U.S. corporate income tax rate fell to 20 percent from 35 percent, Wal-Mart Stores Inc. boosted its starting hourly wage to $11 and gave employees bonuses, the company announced this month. Other companies have yet to disclose any changes following the tax reform.

One area that will be key, Petro said, is mobile, which has emerged as companies’ most valued tool for interacting with customers.

For Deloitte’s Sides, retailers’ money is best spent on improving their products and consumer experience, rather than adding fancy technology in its stores, which he said is less effective.

“The consumer doesn’t respond to shiny objects,” Sides said. “Magic mirrors, facial recognition -- it’s interesting, but it doesn’t drive them to the store.”

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